HEADWINDS TO GROWTH
Q. Do you think India is on the brink of stagflation?
ADITI NAYAR
Inflation is set to be uncomfortably high in FY23—at 5.6 per cent on average, as per our forecast. We have raised our projection substantially after the Russia-Ukraine conflict which has inflamed commodity prices. Some items will see a relatively faster transmission to the CPI (consumer price index) inflation, such as fuels and edible oils. For other items, an uncertain demand outlook may make transmission less rapid. The extension of free food grains under the PMGKAY will soften the blow somewhat by protecting household food budgets for six months.
On the growth side, we had cut our FY23 projection to 7.2 per cent last month. We believe that higher prices of fuels and items like edible oils are likely to compress disposable incomes in the low- to middle-income segments, constraining the demand revival. In the mid- to upper-income segments, normalisation of behaviours after the third wave is set to result in a pivot of consumption towards the contact-intensive services that were avoided during the pandemic. Overall, inflation is set to be uncomfortably high, and growth lower than what we were hoping for. However, it is hard to categorise a 7.2 per cent growth as a stagflationary situation.
JAHANGIR AZIZ
The term stagflation is overused, and mostly incorrectly. It refers to a long period of below potential growth and high inflation. India, and the world, is far from that situation. Even the more cautious estimates of growth in FY23, such as ours, have growth over
